Austral Gold : 31 January 2017 - Quarterly Report & Appendix 5B

December 2016

QUARTERLY ACTIVITY REPORT

Key Highlights Guanaco Production

Guanaco mine production was 14,813 Au oz and 14,361 Ag oz in the December quarter 2016 (25% AuEq oz increase vs. previous quarter). Average cash cost for the quarter was US$527/AuEq oz, AISC was US$664/AuEq oz. and average realised gold selling price was US$1,242/Au oz.

Quarterly production in line with previous 2Q production totals, which in each of the previous 3 years has resulted in a 45,000-51,000 AuEq oz annual production total at Guanaco.

Casposo continues full commercial operations

The Casposo mine, 51% owned by Austral Gold and 49% owned by Troy Resources (ASX:TRY), recommissioned during the September 2016 quarter, was operational for its first full quarter. For this quarter, total production was 4,489 Au oz and 434,607 Ag oz (100% basis) or 2,289 Au oz and 221,650 Ag oz (51% basis); cash cost was US$969/AuEq oz and AISC was US$~1,200/AuEq oz.

Exploration and Mine Development

Dr Diego Guido was appointed as VP of Exploration in October 2016.

The Amancaya infill drilling program (13,312 metres) was completed in November 2016. Two new high grade shoots were discovered (intersects 3.1 m granding 58.93 g/t Au) while the high grade zone of Central Vein was extended by ~400 metres. The results will be used to finalise a pre- feasibility study for Amancaya by the end of Q1 2017.

Refurbishment of the exploration camp at Pinguino (Santa Cruz) commenced.

New Plant Construction

The construction of the agitation leach plant to combine the ore from Amancaya and Guanaco is progressing well and completion is expected by end of March 2017.

Mergers & Acquisitions

During the quarter, the Company sold 399,300 shares of Fortuna Silver for proceeds of US$2.7 million (C$3.7 million) with a realised 51.4% return (pre-tax). The shares were acquired upon the exercise of warrants at C$6.10 per share and expire in October, 2018. Approximately 0.5x million warrants remain outstanding as of 31 December 2016.

Cash and Debt

Cash flow from operating activities was US$4.104 million during the quarter. Cash on hand at 31 December 2016 was US$12 million, an increase of US$2.8 million from 30 September 2016.

Total consolidated debt reached US$18.7 million, of which US$17.2 million are 3-year financial leases with local banks in Chile.

CHILE

Guanaco Mine and Amancaya Project

Background

The wholly-owned Guanaco mine remains the Company's flagship asset. Guanaco is located approximately 220km south-east of Antofagasta in Northern Chile at an elevation of 2,700m and 45km from the Pan American Highway. Guanaco is embedded in the Paleocene/Eocene belt, a geological structural system which runs north/south through the centre of Chile. Currently, the majority of the production from the Guanaco operation comes from the Cachinalito underground system and nearby vein systems with higher average grades.

Gold mineralisation at Guanaco is controlled by pervasively silicified, sub-vertical east/northeast-west/southwest trending zones with related hydrothermal breccias. Silicification grades outward into advanced argillic alteration and further into zones with propylitic alteration. In the Cachinalito vein system, most of the gold mineralisation is concentrated between depths of 75m and 200m and is contained in elongated mineralised shoots. High grade shoots (up to 180 g/t Au), 0.5m to 12.0m wide, have been exploited, but the lower grade halos, below 3 g/t Au, can reach up to 20m in width. The alteration pattern and the mineralogical composition of the Guanaco mineralisation have led to the classification as a high-sulfidation epithermal deposit.

Production

Production from underground operations using the heap leach process generated 14,813 Au oz and 14,361 Ag oz during the quarter ended 31 December 2016. When measured in gold equivalent ounces1 (AuEq oz) total production was 15,014 AuEq oz compared to 11,985 AuEq oz in the prior quarter.

Production for the quarter concentrated in the Dumbo and Cachinalito extensions.

Gold Equivalent Production

Production	2013 Actual Calendar Year	2014 Actual Calendar Year	2015 Actual Calendar Year	2016 Actual Calendar Year	2017 Budget Calendar Year
Gold (AuEq oz)	51,331	51,068	46,869	44,474	~45-51,000

Production for the calendar year is expected to be in line with historical production during the last 3 years; in the order of 45-51,000 oz AuEq.

The December 2016 quarter operating cash cost2 (C1) at Guanaco was US$527/AuEq oz while the all-in sustaining cost3 (AISC) was US$664/AuEq oz (US$673/AuEq oz and US$848/AuEq oz respectively for the quarter ended 30 September 2016).

1. AuEq ratio is calculated at ~71:1 Ag:Au

2. The operating cash cost (C1) for the Guanaco Mine includes: Mine, Plant, On-Site G&A, Smelting, Refining, and 3% ENAMI Royalty.

3. The All-in Sustaining Cost (AISC) for the Guanaco Mine includes: C1, Sustaining Capex, Exploration, and Mine Closure Amortisation.

   AuEq oz Production per Quarter (Calendar Year) Mining

   During the December 2016 quarter, mining continued at the underground operations with a total of 142,412 tonnes mined. The crushed and leached material totalled 141,338 tonnes for the quarter at an average grade of 3.78 g/t Au and 9.36 g/t Ag.

   During the quarter, a total of 2,657 metres of underground mine development was advanced, of which 694 metres related to developments and accesses and 1,963 metres to advances in production.

   Production Summary

   Guanaco Mine	December Quarter 2016	December Quarter 2015	Six months ended December 2016	Six months ended December 2015
   Total Ore processed (t)	141,338	130,488	281,848	140,460
   Average Plant grade (g/t Au)	3.78	2.90	4.62	5.47
   Average Plant grade (g/t Ag)	9.36	8.3	8.8	8.2
   Gold produced (oz)	14,813	9,244	26,575	11,762
   Silver produced (oz)	14,361	11,157	30,470	16,109
   C1 Cash Cost (US$/AuEq oz)	527	823	591	673
   All-in Sustaining Cost (US$/AuEq oz)	664	1,010	746	848
   Realised gold price (US$/Au oz)	1,242	1,121	1281	1,330

   Safety

   During this quarter, three lost-time accidents (LTA) and two nil-lost-time accidents (NLTA) were reported involving Guanaco employees and third party contractors. Safety and environmental protection are core values of the Company. The implementation of best practice safety standards along with a sound risk management program are key priorities for Austral Gold.

   Mine Exploration Program

   Detailed sampling for ICP multi-element assaying was performed on the main ledges of Dumbo and Cachinalito, which were sent to laboratory. The statistical study of the Cachinalito samples shows a positive correlation of Au only with Ba (r=0.43). Unlike Dumbo, there is a low correlation of Au with Ag (r=0.12) and As (r=0.03), and this can be explained by the tectonic remobilisation of primary elements.

   Similar to the Dumbo orebody, and considering the elevation, the system has higher contents of Na and K near surface, and higher contents of Cu and Sb at depth. This observation can be used to vectorise those barren veins that were already drilled and allows making an interpretation of these levels: ~10 is at the mineralised interval, and

   3D modeling: The process of creating a 3D model for the Guanaco mine using the Leapfrog software is in process. A total of 389 digitalised drill holes were controlled in December, they will help to create a database to build solids in order to finish the model in 2017.

   Amancaya and San Guillermo Properties

   Amancaya Project

   Activites to advance the Amancaya project towards construction were made during the quarter. Onsite facilities and road works to the site are well advanced. All the basic permits to start operations are in place. The independant pre-feasibility study that was commissioned in September 2016 was started during the quarter and is expected to be completed by the end of March 2017.

   Amancaya Project Exploration

   During the period, and as announced in the Company's press releases issued in December 2016 and January 2017, the 13,312 metres infill drilling campaign was completed. A total of 93 holes were drilled, all of which were initially drilled with reverse circulation collaring and converted to diamond drilling as they approached the vein target areas. This resulted in approximately 87% of the drilled metres being comprised of reverse circulation, and 13% represented as diamond drilling.

   Assay results for these holes, all on the Central Vein, have been reported in recent Austral Gold news releases. The drill program was designed to test and confirm the presence and consistency of mineralisation within the inferred resource that was previously reported at Amancaya in the amended Technical Report (Amancaya Technical Report) "Guanaco Gold Project, Antofagasta Province, Region II, Chile, NI 43-101 Technical Report", dated 24 November 2015 and which was amended 30 June 2016. It was filed on 25 July 2016 on the Company's profile on www.sedar.com2. Most of the historical drilling used to define the inferred resource was reverse circulation drilling.

   Highlights from assays are as follows:

   • AM-082: 3.1 metres @ 58.93 g/t gold and 94.7 g/t silver from 72.4 metres,

   • AM-053: 3 metres @ 45.48 g/t gold and 966.70 g/t silver from 132 metres,

   • AM-055: 6.7 metres @ 14.6 g/t gold and 83.2 g/t silver from 20 metres, plus

2 The Technical Report was not made JORC2012 compliant, and as such should be treated as a Foreign Estimate.